'Vinita Bali speaking', M D Britannia

“VAT on biscuits should be reduced from 12.5 per cent to 4 per cent”

…says Vinita Bali, managing director of Britannia Industries Ltd - one of the most trusted food brands in India. Britannia has been evolving under the magnificent leadership of Bali, who has a rich and diverse experience in packaged foods & beverages gained from working in a variety of marketing, sales and general management positions
An alumnus of Jamnalal Bajaj Institute of Management Studies in Mumbai, Bali started her career with Voltas Ltd before moving to Cadbury and later to The Coca-Cola Company. After an eventful nine-year association with Coke in marketing, general management and strategy roles, Bali joined her mentor and globally acclaimed marketing guru, Sergio Zyman at the Zyman Group in July 2003 as managing principal and head of the Business Strategy practice in the company's Atlanta office. As a member of the company's board of managers, Bali shared responsibility for developing and managing Zyman Group's consulting business which doubled in that year.
It was in 2005 that Bali took over the reins at Britannia as its chief executive officer, and since then has been in the midst of leading a business model and culture transformation in Britannia. Besides transforming the company with her unique strategies, she also blends a high quality of Indian and international perspective having lived and worked in the UK, Nigeria, South Africa, USA and Chile.
On the jubilant occasion of Modern Food Processing’s 3rd Anniversary, Bali shares her views on Indian biscuits industry and Britannia’s future plans in this e-conversation with Richy D Alexander.

A brief history of Britannia…

The company we all know as Britannia today, was started in 1892 as a non-descript house in Kolkata manufacturing biscuits with an initial investment of Rs 295. By 1910, with the advent of electricity, Britannia mechanised its operations, and in 1921, it became the first company east of the Suez Canal to use imported gas ovens. It was in 1975, the Britannia Biscuit Company took over the distribution of biscuits from Parry's who till now distributed Britannia biscuits in India. In the subsequent public issue of 1978, Indian shareholding crossed 60 per cent, firmly establishing the Indianness of the firm.
In 1997, the company unveiled its new corporate identity – ‘Eat Healthy, Think Better’ - and made its first foray into the dairy products market. Britannia strode into the 21st century as one of India's biggest brands and the pre-eminent food brand of the country. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second largest dairy company, and Britannia New Zealand Foods Pvt Ltd was born. The company is also recognised for its innovative approach to products and marketing.

The current status of the Indian snack & biscuits industry…
Biscuits contribute Rs 80,000 million to the FMCG industry and provide a vast opportunity for growth, as the per capita consumption of biscuits is less than 2.1 kg in our country, compared to more than 10 kg in the US, UK and other European countries and above 4.25 kg in South East Asian countries. Higher disposable incomes and the willingness of consumers to try new brands have attracted a number of players to the biscuit industry, both at the national & local level and generated intense activity in the marketplace. The branded market grew around 15 per cent to 16 per cent last year. Commodity inflation continues to have a significant impact on input cost and this inflationary pressure has put the industry profits under pressure.

Emerging trends in the Indian biscuits industry…
Today, there is a greater consumer choice both at the local and national level, together with a diversity of tastes & benefits ranging from health & nutrition to pure indulgence.

On the increasing inflation affecting the snacks & biscuit industry…
We are operating in an extremely high and unprecedented cost scenario and some irrational competition too. The result is a huge pricing pressure with limitations on price hikes for the entire industry and a shrinking profit pool of the industry. Wheat and oil prices are already showing an increase of more than 20 per cent. In addition, steep increase in crude oil prices and hike in petrol & diesel prices announced by the government has resulted in a significant increase in price of packaging materials, freight and production cost.
As far as Britannia is concerned, part of the challenge is to enhance and improve our productivity to absorb inflation in input cost to the extent possible and make our brands available for consumers at affordable prices. We have focussed on improving productivity, eliminate cost disadvantages and cut non-value adding activities to secure profitable growth. Through the various cost reduction initiatives – the company has taken over the last three years – Rs 1,200 million of cost has been eliminated.

Britannia’s business strategy and its performance during 2007-08…
Our strategy is simple – to get more people to buy & enjoy more of our brands – anytime, anywhere – everyday.
Britannia’s performance in 2007-08 was strong with sales growing 17.5 per cent, on top of 27.5 per cent growth in the previous year, adding Rs 8000 million of incremental revenue during this period (Total revenue for 2007-08 was Rs 26,170 million). Britannia is amongst the fastest growing FMCG companies in the last two years. Net profit increased by 77.5 per cent and operating margin by 307 basis points to 7.5 per cent in 2007-08 despite inflation in key commodities by 20 per cent-25 per cent in the last two years. Britannia continues to be the most trusted food brand of India, in a survey conducted by AC Nielsen ORG-Marg, consumers voted brand ‘Britannia’ among the Top 10 most trusted brand across categories for the fifth successive year. It was also rated as second most trusted food brand in 2008 and first in 2007. Across all categories, it was rated as seventh most trusted brand in 2008.
Consistent with its credo of Swasth Khao, Tan Man Jagao, Britannia created a partnership with Global Alliance for Improved Nutrition (GAIN) and the Naandi Foundation to supply iron fortified Tiger biscuits to supplement the mid-day meal program in schools. This has been recognised as a unique programme globally by GAIN. The World Bank Institute has written a case study and Britannia was invited to make a commitment to the Clinton Global Initiative, a non-partisan catalyst for action that brings together a community of global leaders to devise and implement solutions for some of the world’s pressing challenges like nutrition.

On the individual share of organised & unorganised bakery sector…
The biscuit category is one of the largest FMCG categories with a turnover of approximately Rs 80,000 million. The organised branded market is over 85 per cent with the top three brands holding close to 70 per cent share. In the breads category, the organised players account for 75 to 80 per cent share.

Challenges faced by the bakery industry…
The bakery industry consumes agricultural produce adding to the income of farmers. This is a direct contribution of the industry towards improvement of the agricultural sector and strengthening the rural economy. The industry also provides direct & indirect employment, locally as well as nationally. Despite this, the industry is faced with serious challenges. Rapid increase in cost of major inputs such as wheat flour, sugar, oil, packaging material, fuel, power, transportation etc. has made a serious dent in the viability of the industry. Added to this is the heavy burden of taxation, which is making it difficult for the organised biscuit industry to operate at an optimum level. Biscuits attract VAT at 12.5 per cent - like chocolates, confectionery and ice cream which cater to a much smaller and relatively more affluent consumer base. Other categories with lesser nutritional value like potato chips, jam, jellies, sweets, savories, namkeens, etc attract lesser or no VAT. Biscuits deserve parity with tea, coffee and other basic food products that are liable to VAT at 4 per cent instead of being subject to VAT at 12.5 per cent applicable to delicacies. This is restricting the growth of the industry, utilisation of agricultural produce and therefore larger revenues for the government. To create a level playing field for an industry that is serving a large base of the population both economically and from a nutrition and health angle, there is a need to reduce VAT on biscuits from 12.5 per cent to 4 per cent.

On Britannia’s food processing and packaging portfolio…
Products are sourced from several manufacturing locations spread across the country and reach to millions of consumers through an efficient and widespread distribution chain. We have been augmenting our manufacturing facilities to meet the growing demand. The Britannia system has invested over Rs 2,000 million in last two years in capacity expansion. We plan to make substantial investments in this area for the next couple of years too.

Response as far as the launch of new products are concerned…
We have received an overwhelming response and extended these products nationally. The segment of bread, cakes and rusks is growing rapidly and the business has doubled in two years. Brand building & Innovation is a key driver of strong growth and you will continue to see more products in these categories.

Britannia’s overseas operations…
Consistent with our growth strategy to expand international presence and to grow through relevant geographic expansion, in March 07, we acquired a 70 per cent beneficial stake in two Middle-East companies, which are significant regional players in biscuit and cookies in the GCC markets. In addition, these companies export their products to over 30 countries around the world. Middle East is one of the fastest growing markets with significant synergies in terms of consumer profile, tastes, habits, attitudes, etc and provides a huge opportunity for growth. In 2008, we extended our international operations to Sri Lanka and are in the process of introducing a range of select brands.

Future plans and new innovations…
Innovations fall into several categories and include business model innovation, application of new technology and new products & packs. In 2007-08, The company filed two technology patents for designs developed indigenously. Britannia also led the market in product & pack innovation, commercialising both in-home & out-of-home consumption opportunities, some of the new products and packs introduced included Treat Fruit Rollz, NutriChoice Digestive, NutriChoice SugarOut, Good Day Jumbo, Tiger – Banana (fortified with iron), Good Day – Classic Cookies, Greetings – gift packs and a variety of cheese variants.
Additionally, several power brands were renovated to enhance their taste & health appeal. Britannia is the only biscuit company to have removed trans-fat from all its recipes.
The company also augmented its recipe and design capability to fortify products with micronutrients, consistent with ‘Swasth Khao, Tan Man Jagao’ and this included adding micronutrients to Tiger, Tiger Banana, Milk Bikis as well as bread. Approximately 50 per cent of the company’s bakery portfolio is now sold fortified with micronutrients. You will see more of our plans unfold in this year.